Do I Need Title Insurance?
Purchasing real estate is probably the biggest investment you will ever make. With that in mind, you will probably want to insure it not only to protect it from fire and theft but also from title defects that may allow someone else to hold a claim to your property.
It is possible for prior owners and other entities to hold both legitimate and illegitimate claims against your property. Problems with the title can limit your use of the property and could lead to a financial loss. The security interest of your mortgage lender can be put at risk as well. Title insurance protects you and your mortgage company from potential risks associated with defects in title.
What is a title report?
A title report is a report that discloses the current ownership, easements, restrictions and liens relating to a particular property. This report is normally prepared by a title company prior to issuing a title insurance policy. A preliminary version of this report is known as a preliminary title report.
What are “clouds” on a title?
A “defect” or “cloud” on the title is a problem that makes ownership questionable. For instance, a previous owner sold the property 15 years ago. His wife was listed on the deed but for some reason did not sign-off at closing. Her interest in the property is a “cloud” and must be removed to clear the title.
If the title looks good why do I need title insurance?
Because no one is perfect. The examination covers all aspects of ownership during the 50 years prior to closing. Even an expert title examiner can miss a defect that might crop up to create problems later.
Do I have to buy title insurance?
Not if you’re paying cash for the property. If you’re obtaining a mortgage the lender will require a policy in its name to cover its interests. The lender may or may not require you to buy a policy for your own protection.
What types of title problems are not covered?
• A title insurance policy does not cover defects that occur after you purchase the property.
• Policies often exclude problems with easements, mineral and air rights, and liens.
Ask your attorney or closing agent for an explanation of all exclusions, and for a recommendation as to which items should be cleared up prior to closing.
Frequently Asked Questions About Real Estate Title Insurance
What Is Title Insurance?
A Title Insurance Policy is a contract that protects a consumer against losses arising through defects in the title to the real estate. The Title Insurance Company agrees to provide the owner and mortgage holder a legal defense of the title if a claim arises.
What Can Make A Title Defective?
These are just some of the hidden defects that a Title Insurance Policy can protect against:
• Forged Deeds
• Unknown Heirs
• False Affidavits
• Unpaid Judgments
• Unfiled Liens
• Forged Documents
• Improperly Indexed Documents
Title Insurance Protects Against Recorded And Hidden Title Defects. If You Are Not Using Title Insurance, You Are Not Fully Protected.
Must I buy title insurance when closing a real estate transaction?
There is no requirement to buy title insurance; but, realistically, most mortgage companies, banks and credit unions will require title insurance to protect their interest in the property. However, it is recommended that you do purchase title insurance unless you have fully investigated the condition of title and are willing to accept the property with the liens and restrictions shown.
What is a title examination, or title search?
It’s a close examination of all public records that involve title (deed) to a piece of real estate. The person conducting the search looks at past deeds, wills, and trusts to make sure the title has passed correctly to each new owner. The examiner tries to verify that all prior mortgages, judgments, and other liens have been paid in full. A title search should uncover potential problems, such as rights others may hold (right of ways, view easements, power line easements, mineral rights), claims by prior undisclosed heirs, and pending legal actions.
What if title problems are found after closing?
• The policy will pay your legal fees if you must go to court to defend your deed.
• If you lose the property the insurance should pay you for the loss up to the amount of the policy.
What does a title insurance policy cover?
• Correction for problems that did not show up during the title search or were missed by the examiner.
• Errors in public records.
To whom is the policy issued? Who is paid if there’s a problem?
• A lender’s policy is usually issued for the amount of the mortgage. It pays the lender if a problem surfaces.
• An owner’s policy covers the property’s full sales price and insures the owner against loss.
Am I protected if my home increases in value?
They policy protection increases the coverage amount as the property’s value increases up to 10%. Title insurance is a relatively inexpensive item and can be one of the best purchases you’ll make for your new home. Title insurance isn’t a magic bullet–if problems occur you’ll still have to deal with them and sometimes it’s not easy to get action from the title insurance company. But overall you’ll sleep a little better knowing you have some protection if a long-lost heir of the former owner shows up on your doorstep.
Who pays for title insurance?
The Buyer pays the one-time title insurance premium at closing.
How often must I pay the title insurance premium?
Title insurance policies are paid in-full with a one-time fee which is usually part of closing costs.
Hidden Risks in the Chain of Title
A NUMBER OF IMPORTANT REASONS WHY YOU SHOULD CONSIDER
PURCHASING OWNER’S TITLE INSURANCE
OWNER’S TITLE INSURANCE will not only protect you against these hidden risks that would not be disclosed by even the most meticulous search of public records by the Bank attorney, but will also pay for the legal fees attendant to the defense of your title as insured.
It is a one-time charge and will probably not be available for such a small fee at any future date. In addition, there is no extra charge for an inflation rider which is added to every policy and which will increase coverage as required, up to 50% in addition to present coverage. Some of the hidden risks that may be protected against are:
2. Fraud (misrepresentation) in connection with the execution of documents.
3. Undue influence on a grantor (Seller) or executor of a will.
4. False impersonation by those purporting to owners of the property.
5. Incorrect representation of marital status of a grantor (Seller).
6. In some cases, undisclosed or missing heirs.
7. In some cases, Wills not properly probated.
8. In some cases, mistaken interpretation of wills and trusts.
9. Mental incompetence of grantors.
10. Lack of mental capacity, intoxication of grantors.
11. Conveyance of a minor.
12. In some cases, birth of heirs subsequent to the date of a will.
13. In some cases, inadequate surveys.
14. In some cases, incorrect legal descriptions.
15. Non-delivery of deeds.
16. Unsatisfied claims not shown on the record.
17. Deeds executed under false or expired powers of attorney.
18. In some cases, confusion due to similar or identical names.
19. Potential homestead rights of ex-spouses of former owners.
20. Incorrect indexing at Registries of Deeds.
21. Clerical errors in recording legal documents.
22. Falsification of records.
23. Delivery of deeds after the death of grantor or grantee, or with out the grantor’s permission.
24. Deeds in lieu of foreclosure given under duress
25. Errors in municipal tax record or reports.
26. Defective acknowledgments.
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